For the Memorial Day edition of our member Q&A, we take a look at questions about which portfolio stocks to invest in with limited funds, high prices for CBD products, and the cannabis industry’s struggle with Big Alcohol. Take a look…
It’s the beginning of a long weekend, and I know a lot of you are ready to fire up your grills for a nice cookout with family and friends.
With that in mind, I want to get right into this week’s questions so you can get back to your burgers and dogs.
Let’s start with a question from Nilda, who wants to know how to approach such a large number of stocks in our portfolios.
Nilda V.: “If you have a limited amount of money to invest, how do you decide which cannabis stock to buy? Imagine you are thinking several stocks every month and 12 months. How do you filter which ones of them have the best potential? Thank you for giving me an opportunity to express my concern.”
Hi, Nilda. Thanks for an important question. I bring an average of two new stocks every month for our Cannabis Investor’s Report members, as you said. And I try to have some profitable sells mixed in so the model portfolio doesn’t become too unwieldy, but at any given time members can expect from 8 to 12 stocks in the portfolio. I’m aware that not everyone can afford to take a meaningful position in that many cannabis stocks, and some of the people who can do so might choose to have a more concentrated portfolio.
If you only want one or a few cannabis stocks, which you choose is up to you and your investment goals. If you have a more aggressive approach to trading, you might pick one of the stocks that shows the biggest upside but may carry a little more risk. If you have a lower risk tolerance, you might pick one of the larger, less-risky stocks like Canopy Growth (NYSE: CGC).
You can usually get a sense of how risky a stock is when I write about it, and generally the smaller a market cap a cannabis stock has, the riskier it is. (There are exceptions, which I’ll tell you about if I put a big but especially risky stock in the portfolio.)
Jake D.: “How is the war with alcohol interests going to be dealt with?”
Good question, Jake. There’s no doubt that alcohol and cannabis are at least a little bit at cross interests. Both are regulated, age-restricted products, and just about all use of alcohol and much of the eventual use of cannabis is for recreational purposes as a social lubricant.
So far there have mostly been skirmishes, like alcohol companies trying to make their products easier to buy and cannabis more difficult to purchases, but it’s easy to predict that war is on the horizon.
What will happen? To answer, let’s go to medieval and renaissance Europe.
There were few large countries back then, and countries large and small were constantly at war with each other. How did warring countries reach a peace and increase their security? One way was through marriage. Kingdom A would marry off one of their non-heir sons or daughters to one of the sons or daughters of Kingdom B. Instant peace.
The “war” with alcohol will end the same way. In the long run, big alcohol companies will acquire cannabis companies, and the largest cannabis companies will eventually acquire some alcohol companies. We’ve already seen Constellation Brands’ (NYSE: STZ) big investment in Canopy, of course, and Molson’s joint venture with Hexo (NYSEMKT: HEXO). And we know that AB Inbev (NYSE: BUD) and the other big alcohol companies have cannabis executives on their speed dials.
And that’s great, because I love a happy ending.
Tim K.: “When are the prices on good CBD products going to come down? Crazy to have to pay $2 for a single .25 dose gummy from Pure Kana. Great product and all, but just seems so expensive. And that’s a deal too, sadly other reputable companies charge even more.”
Tim, the prices will come down. I can’t say exactly when, but I do know that several of the larger CBD companies know that some of the industry’s growth will depend on their ability to deliver high-quality products at lower prices than we’re seeing right now.
Two things have to happen before prices start to move meaningfully.
The first is that supply has to catch up with demand. Right now some of the better-quality companies are barely meeting their existing orders, and they are scrambling to grow in time to fulfill future orders they know are coming. No one is going to lower their prices if they’re already selling out of product at the current price, and as investors, we’d be pretty mad if they did!
The second thing that has to happen is for costs to come down at least a bit before prices do. This will happen as more acres of hemp are planted, as extraction of CBD and other cannabinoids becomes more efficient, and as banks, trucking companies, and other ancillary businesses become more comfortable with the provisions of the 2018 Farm Bill.
Those things look like they’re a long ways off, but they’re probably not. Both the CBD and THC cannabis worlds are both moving at incredible speed for a consumer product.
That’s why it’s so important you know how to make the best moves today.
The markets are closed Monday in observation of Memorial Day. Wherever the long weekend takes you, we hope you enjoy it, and we’ll be back with more cannabis investing news on Tuesday.
Executive Director, National Institute for Cannabis Investors
4 responses to “Q&A: When Will CBD Prices Come Down?”
May 25 2019